The business and culture of our digital lives, from the L.A. Times

Zookz: A license to infringe?

July 14, 2009 | 9:40
pm

Companies that offer downloadable movies and music online without licenses from the copyright holders typically wind up answering lawsuits from the Hollywood studios and the major labels. So it was odd to see a news release announcing the impending launch of Zookz, a site that offers unlimited music or movie downloads for about $10 a month, or both for $18. That's a bit like waving a red cape in front of a couple of bulls, isn't it? But Zookz believes it's in the clear, legally, thanks to the World Trade Organization. It's a far-fetched argument, but you've got to give Zookz credit for nerve.

The main differences between Zookz and most online outlets for bootlegged goods are that it's not a file-sharing network and that the content isn't free. Instead, it's just insanely cheap. The company's impossibly low prices reflect the fact that it doesn't pay for most of its inventory or share revenues with copyright holders. All the proceeds go to Zookz, its 10-person staff in St. Johns, Antigua, and (through taxes) the Antiguan government.

How can it get away with this, you ask? I'm not sure it can, but here's its argument....

The governments of Antigua and the United States battled for several years before the WTO over whether U.S. restrictions on online gambling discriminated against foreign firms. The WTO sided with Antigua in several preliminary stages, but the U.S. kept contesting the body's findings. So to increase the pressure, Antigua asked WTO arbitrators to give it permission to suspend its obligations under sections of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement related to copyrights, trademarks, patents, industrial designs and trade secrets. The arbitrators agreed in December 2007, finding that Antigua could request the WTO's permission to suspend its obligations up to a value of $21 million annually.

Citing that ruling, a company in St. Johns called Carib Media -- led by a prominent local attorney and entrepreneur named Hugh Marshall -- came up with the idea for Zookz. A preliminary version of the site went live last week with a relatively bare cupboard: about 50,000 MP3s and 1,500 movie files in a DRM-free MP4 format. (A spokeswoman for the company said it's adding 10,000 songs and 300 movies a week, but at that rate it will take decades to catch up to the inventory at iTunes and Amazon.com). Among the tracks it offers, though, are ones you can't find on any legitimate online music service, including songs by The Beatles.

Copyright holders say the WTO ruling doesn't give companies in Antigua a free pass to violate the copyright laws of Antigua or any other nation, or other international copyright treaties that Antigua has agreed to. The Office of the U.S. Trade Representative contended in an e-mail, “There is no website anywhere in the world that has WTO authorization to engage in copyright piracy. Any representation to the contrary is false, and should be dealt with by the appropriate domestic authorities.”

It's not clear what, in fact, the ruling would let Antiguan firms do. According to Neil Turkewitz, an executive vice president at the RIAA who specializes in international issues, the first step would be for the government of Antigua to seek the WTO's approval for a method to impose the $21 million worth of sanctions. "There’s been no request, and there’s been no consent granted to proceed in this manner," Turkewitz said. And even if the WTO did permit a downloading service, he said, it would have to be confined to Antigua and limited to U.S. intellectual property. No Beatles songs, in other words.

That's a total misreading of the WTO's ruling, argued William Pepper, the company's legal counsel. "There is no burden on Antigua to go back and do anything with anyone," he said in an interview. He claimed that the ruling is much more expansive than the USTR or Turkewitz acknowledge, trumping all other intellectual property laws and agreements and imposing no limits on where Antiguan firms can do business online. The only restriction set by the WTO, he said, is that companies in Antigua can take in no more than $21 million a year through the sale of copyrighted material. Zookz is the only one so far, he said, but if others launch, they'll have to work together to observe that limit. And if Zookz nears the $21-million threshold on its own, Pepper said, it may have to start giving away movies and music.

There's something illogical about that stance. It suggests that if a company didn't charge anything for the downloads, there would be no limit to the quantity of intellectual property infringed. It seems much more realistic that the WTO was imposing $21 million worth of pain annually on U.S. industries, measured by the market value of the intellectual property distributed. A single trade secret could be worth well more than that sum. Nor does it make sense that the WTO would allow Antiguans to exploit intellectual property from countries other than the U.S. -- French movies, say, or Canadian rock -- when Antigua's beef is with Uncle Sam alone.

Pepper said the whole mess could have been avoided had the U.S. taken seriously Antigua's complaints that it was discriminating against offshore betting houses. Antigua has a point about that; Congress allowed some U.S. operations (e.g., race tracks) to take bets online, but barred offshore operators from getting into the game. Rather than complying with the WTO's findings on that issue or finding a way to mitigate the harm to Antiguan gaming businesses, Pepper said, the U.S. government effectively ignored them. "The Americans want to deal with this issue? Fine, they have to come and talk. The movie industry wants to deal with this issue? Fine, they have to come and talk."

The attorney also said the company was concerned about the effect on "creative artists" and would be happy to discuss ways to keep individual artists from being affected by Zookz. But he added, "There's no way we can surrender the right and the opportunity to create more jobs, to generate more revenue up to $21 million, and to benefit the consumers of America."

Naturally, the MPAA doesn't see Zookz as a modern-day Robin Hood. Said spokeswoman Elizabeth Kaltman in an e-mail, "The suspension of intellectual property rights is not an action this pirate Website can undertake on its own. It is, pure and simple, another example of a movie pirate, stealing movies from creators, and attempting to profit from its theft."